Wind Industry Facing COVID-19 Rushes to Tax Credit Finish Line
On the breezy high plains of Wyoming, PacifiCorp is steadily building out its big wind farms, showing a resiliency in the face of the coronavirus pandemic that’s rocking most of the energy economy.
The utility, which is owned by a unit of Warren Buffett’s Berkshire Hathaway and serves six western states, expects to double its wind capacity by adding 1,150 megawatts of power while upgrading existing production by the end of the year. The projects will produce the equivalent of the annual electricity use of 400,000 homes.
“We don’t expect any significant delays,” says David Eskelsen, a spokesman for the utility. “Work has adjusted to CDC guidelines for social distancing and other safety steps, but those have been manageable thus far.”
This year is supposed to be the capstone to a strong decade for U.S. wind power. The industry has been eyeing record growth for 2020 as developers rush to finish wind farms before year’s end to get a federal production tax credit. While PacifiCorp offers a sign of hope that dozens of projects may be completed in time, other developers are beginning to struggle because of the COVID-19 outbreak, casting doubt on the banner year.
While the disruptions pale in comparison to the layoffs and plunging prices of the oil industry, wind companies are experiencing delays in getting components and parts following manufacturing shutdowns in China and Europe. In New York, stay-at-home orders have halted construction on projects. Some developers are also having trouble lining up investors.
“Even before Covid there was some concern about that volume of projects coming online,” says John Hensley, vice president for research at American Wind Energy Association, a trade group. “After Covid, there is a significant risk that a lot of those projects are not able to meet their 2020 deadline.”
That would mark a setback for the industry after a remarkable run. Since 2008, wind power capacity has about quadrupled to more than 100,000 megawatts, the equivalent of powering 32 million homes.
Wind has become the dominant renewable energy thanks to the production tax credit, which began in the 1990s and applies to the megawatts of power produced, and technology improvements. Both factors helped drive down the price of wind power 70% over the last decade, making it competitive and frequently less expensive than even low-cost natural gas.
“The federal production tax credit was very successful in stimulating the construction of wind resources,” PacifiCorp’s Eskelsen says.
PacifiCorp was an early mover into wind power in the late 1990s. It shifted into high gear in the mid-2000s, building and buying capacity as the price of wind became equivalent to gas and concerns with carbon emissions made coal more risky. This year, Wyoming’s biggest wind power producer is adding 267 turbines to its fleet of 409 machines.
PacifiCorp’s project and most of the other wind developments are not located in coronavirus hotspots, which may help them get to the finish line. They are primarily in rural areas in the so-called wind belt, stretching from the Dakotas to Texas.
Some of these states, including Iowa, the Dakotas, Nebraska and Wyoming, have not issued stay-at-home orders for residents as of early April. That may change, but for now, the projects in these states don’t suffer from the same labor constraints that are shutting down businesses in other parts of the nation.
Wind developers also have momentum on their side. They have been planning their projects since 2016 and have four years to finish them to qualify for the tax credit, providing an extra incentive. At the end of March consulting firm Wood Mackenzie predicted the industry would add a record 14,700 megawatts of power this year, just a slight trim from its prior forecast at the end of November.
“Things are changing daily. But when we spoke to the construction firms, developers, manufacturers and logistics firms, everybody was still confident in the build expectation for 2020,” says Luke Lewandowski, director of Americas power and renewables research. “The near term outlook remains fairly robust.”
The trade group AWEA has a more bearish outlook, estimating that projects with plans to deliver 25,000 megawatts of power are threatened with delays or cancelations in the next three years. To provide relief the association is asking lawmakers to extend the time to qualify for the tax credit for two years, giving developers more time to finish wind farms and qualify for the benefit. The extension would help projects attract tax equity investors, who provide capital in exchange for the credits that they use to offset taxes.
“We have heard of a number of players who have either exited the market completely or suspended their activities,” says AWEA’s Hensley. “With the economic impacts, they don’t have confidence that they will not have the tax liability to consume the credits.”
If the wind industry fails again to get the extension - the $2 trillion stimulus package in late March didn’t include it - growth may be slowed but perhaps not for long. The threat of climate change from fossil fuels is likely to provide demand for wind power for the next two decades.
More than half the states in the country set targets to significantly expand their use of renewable power, with California and Washington committing to using only clean energy by the 2040s.
Vince Bielski is a freelance journalist covering energy, the environment and technology. He was a senior editor at Bloomberg News until December.